Heartland incentive rate sows economic development seeds

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Similar to farmers in South Dakota, Minnesota, Kansas and Iowa, states where it supplies power, Heartland Consumers Power District is sowing the seeds of economic development with its Energy ONE incentive rate.

Planted several years ago to attract investment in its service area by new and existing businesses, the special rate is beginning to harvest a bumper crop of success stories.

"Over the course of the last year is where we've been most successful with it," Casey Crabtree, director of economic development for Madison, South Dakota-based Heartland, said in an interview.

Energy ONE differs from most traditional utility economic development rates because it does not include a demand charge, typically a sizeable staple of an industrial customer's bill, and often an unpredictable one.

"We're taking the demand piece out of their bill, which helps reduce risk,” he said. What they're getting is a special energy-only rate and we fix that energy rate for three years and it's lower than what their typical rate would be."

For Heartland, which serves 31 communities in the four states, it is sort of a case of delayed gratification. Heartland makes a little less revenue than it could earn under a traditional economic development rate in the early going, but hopes to make that up in later years by attracting larger new and expanding loads with the incentive.

"In my opinion, it's always a win-win," Crabtree said. "It's building these jobs in that community, increasing the quality of life in that community." And if Heartland sells more electricity to those customers at some point, so much the better.

For instance, Heartland sells a block of power to New Ulm Public Utilities in Minnesota. NUPU and Heartland partnered in offering the Energy ONE rate as an inducement to Kraft Heinz to invest $100 million in a plant expansion in New Ulm.

In Volga, South Dakota, meanwhile, the rate played a role in luring Prairie AquaTech, which is building a multimillion-dollar facility just outside of town to convert soybean meal into high-protein feed for fish and other animals.

"It was a huge part of our decision" to locate just outside of Volga, Dennis Harstad, Prairie AquaTech's vice president of operations and general manager, said in an interview.

As a startup company, Prairie AquaTech was looking to save as much money as possible on core expenses such as utilities. The projected savings from Energy ONE as they look to expand over the next several years is "millions of dollars," he said. "Upfront, we saved a bunch of money."

Prairie AquaTech plans to break ground for the Volga plant this summer and to be in commercial operation in the summer of 2019. The facility is expected to create 30 to 35 permanent jobs in the community.

Success stories like that are music to Crabtree's ears. "Our intent with the whole program is to get these large load customers into our territory and expanding, and to get over that hump and build up," he said.

Although it is difficult to quantify and each business and load is different, Energy ONE probably saves the new and expanding businesses that use it at least 10% per month on their energy bills, Crabtree said, and in some cases probably more.

To serve its communities, Heartland generates electricity from three facilities -- coal-fired power plants in Wyoming and Nebraska and a wind farm in South Dakota.

When it comes to Energy ONE, the old adage, "if it ain't broke, don't fix it" applies. No major changes to the rate are planned in the foreseeable future, Crabtree said. "For the most part, we're going to continue to promote it because we've had such good success with it."

For additional examples of how public power is utilizing innovative rate plans to attract businesses, read this article in the November-December 2017 issue of Public Power Magazine.